‘Business conditions still tough in the near term’
KUCHING: with anecdotal evidences showing business conditions remaining tough in the near term, analysts maintain their dampened outlook as we enter the second quarter of 2019.
This comes as Malaysia’s Nikkei Manufacturing Purchasing Managers’Index(PMI)deteriorated to a three-month low in March, coming in at 47.2 from 49.6 in February.
It turned out to be the lowest since December 2018’s reading of 46.8 and is the sixth straight month of contraction since October 2018.
AmBank Research chief economist Dr Anthony Dass and research executive Munesh Nair Muralidharan found Malaysia’s business condition contradicted that of Asean neighbours like Vietnam and Myanmar where their business environment improved for the first time in 2019.
TheNikkeiAseanManufacturing PMI rose to 50.3 in March from 49.6 in February, as manufacturers expanded their output more quickly on the back of a slight rebound in new orders.
“Our concern is that both output and new orders are still weak,” they said in a special report yesterday. “It clearly showed that member companies under the PMI are struggling to lift their production owing to harsher demand conditions, especially those depending on the export market.
“Besides, manufacturers are being cautious on the inventory levels, with both pre- and postproduction stocks falling. Although holdings of finished items depleted as firms stepped up efforts to ship orders in a timely fashion, buying remained low.”
As overseas demand remained tepid, Affin Hwang Investment Bank Bhd (AffinHwang Capital) saw that firms were cautious over their inventory levels which led to a drop in both pre- and postproduction stocks.
“Purchasing activity had also fallen in March. Meanwhile, employment was stable as the drop in workforce was offset by the rise in hiring,” it said in a separate note.
“Despite current weak conditions, manufacturers had registered their strongest degree of optimism towards future output in nearly a year. This was in view of higher forecasts by firms for increased sales, new projects and products as well as successful new contract tenders.”
In the coming months, AffinHwang Capital expect Malaysia’s manufacturing production to be supported by healthy demand for Malaysia’s electrical & electronic ( E& E) products, as reflected by its steady export growth of 8.2 per cent year on year (y-o-y) in January, which will support the manufacturing sector.
“Furthermore, we also anticipate some recovery in Malaysia’s manufacturing PMI towards the second half of the year following some signs of stabilisation in China’s economy.”
Kenanga Investment Bank Bhd (Kenanga Research) also echoed the less-than-sanguine outlook as evidenced by uncertainty in global trade and growth slowdown in key export market.
“We are cautiously optimistic in the near-term as new exports orders are weakening citing latest manufacturing PMI reports despite some improvement in the Baltic Dry Index which grew to 689, and expansion in the region’s manufacturing activity,” it said.
“As expectations of slower domestic demand and manufacturing output growth, GDP growth is projected to moderate to 4.5 per cent in 2019 from 4.7 in 2018.”